KKR & Co. Special Situations Group: The New White Knight

KKR & Co.’s Special Situations Group and Australia’s Allegro Funds have agreed to the purchase of a distressed commercial loan portfolio with a face value of 350 million Australian dollars (US$364 million) from Lloyds Banking Group international unit BOS International.

Bloomberg News

KKR & Co. co-founder Henry Kravis. His firm has been investing in credit since 2004.

The portfolio includes loans attached to Gresham Private Equity-owned printing company GEON Group; industrial and safety group Jeminex; a managed scheme partially owned by Gunns Ltd. called the Australian Forestry Plantation Trust; and coal-fired power station Callide, located in Australia’s Queensland state.

KKR’s San Francisco-based Global Co-Head of Special Situations Jamie Weinstein spoke to Deal Journal Australia about the transaction. The below interview has been edited.

WSJ: How does this deal compare with other transactions executed by the special situations group?

Mr. Weinstein: We’re really excited about the transaction; we have a great global working relationship with Lloyds. It fits with one of our global investment themes — the notion of banks deleveraging and shrinking their balance sheet exposures. The biggest place for that activity is Europe where there are changes in the regulatory environment and the implementation of Basel III is pending. Monitoring opportunities to acquire non-core portfolios continues to be an active area both in Australia and around the world.

WSJ: Can you elaborate on any further opportunities for the group in Australia?

Mr. Weinstein: We continue to see an interesting pipeline of transactions in Australia around legacy leveraged buyout deals before the global financial crisis. The way we look at any of these opportunities is as a solution provider in the broadest sense, whether that’s providing a resolution to a bank dealing with difficult assets on its balance sheet, supporting a management team with its capital structure or helping a sponsor with an over-leveraged portfolio company.

WSJ: Why did you choose to work with a local partner in Allegro?

Mr. Weinstein: We work with partners in a variety of different contexts but felt Allegro was the best partner in the local Australian market to help us drive and add value to these positions given the complexity of the portfolio. Our special situations team is based in San Francisco, New York and London and it works closely with other KKR colleagues across the world so members of our Sydney office will be involved in maximizing outcomes of the portfolio for the benefit of all stakeholders.

WSJ: How quickly do you expect to turnaround each underlying investment in the portfolio?

Mr. Weinstein: Each one of them is a unique situation with a different underlying exposure. KKR is a long-term investor which provides long-term capital. We did extensive due diligence on all the positions prior to entering into the transaction and we expect to immediately begin working with management teams and sponsors as a constructive partner.

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